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Financial Settlements

For many people, agreeing on and arranging the financial settlement is the most difficult part of a divorce. Not just because sorting out the details can take time, but also because dividing up the assets of the marriage can be just as emotionally devastating than going through the process of getting a divorce. Working with a solicitor can make this process much easier, by taking some of the workload off your shoulders.

What is a Financial Settlement?

In divorce proceedings, a financial settlement is the agreement the divorcing couple makes regarding their finances. The settlement includes details such as distribution of marital assets, and financial arrangements for supporting any children of the marriage.

How can a Solicitor help arrange a Financial Settlement?

For someone who is going through a divorce, a solicitor can provide help in many ways. They can provide legal advice and assistance, during mediation, court proceedings, and other legal meetings. For example, a solicitor can help with the following divorce and settlement matters:

  • Provide legal advice during negotiation of a financial settlement, as well as other matters relating to the divorce, such as child custody arrangements.
  • Assist with completing and filing legal forms and financial documents.
  • Help calculate marital asset values, determine what assets are joint marital assets or by individuals, and calculate the value of the settlement someone is entitled to claim.
  • Negotiate on behalf of a client to reach a financial settlement, either directly with the other party’s solicitor, during mediation or the collaborative law process, or during a court hearing.
  • Help someone apply to the courts for a financial order.

Sometimes, a divorcing couple can negotiate the terms of a divorce and financial settlement without any acrimony, and may decide to settle the terms between themselves rather than hiring solicitors. While this is a possibility, it’s often better to work with a solicitor even when the divorce is an amicable one, as it’s always a good idea to have representation just in case it becomes difficult to agree to settlement terms. As well as this, a solicitor can provide advice and assistance that makes the whole process of divorce and settlement arrangement smoother and easier to deal with.

In cases where the value of the marital assets is high, or where the financial arrangements get complicated, it’s very useful to hire a solicitor for advice and representation. It’s also a good idea for any case where children are involved, to ensure that their best interests are always protected, in terms of financial agreements as well as child arrangements.

Legal Processes Involved in Reaching a Financial Settlement

Divorce proceedings as a whole involve three main stages: filing the divorce petition, applying for a decree nisi, and obtaining a decree absolute. Once these three stages have been completed, the divorce is final. The financial settlement is a separate process that typically occurs at the same time as these steps are being carried out, but the timeline for reaching a financial settlement doesn’t have to conform in any particular way to the stages of divorce. Depending on the situation, the financial settlement is finalised by the time the decree absolute is obtained, or may be finalised afterwards.

Financial settlements can be arranged in one of several different ways.

Agreement between parties: sometimes the divorcing couple may be able to reach an agreement on their own about how to distribute assets. For example, the couple may decide to split the value of all assets down the middle, or may retain ownership of whatever assets they entered the marriage with, and split jointly-owned assets 50-50. This may be the case when the marriage is of short duration, when there are no children under 18, or when there are few assets to consider.

If the divorcing couple can’t reach an agreement on their own, there are several alternatives that can help facilitate the process.

Mediation: In this process, the divorcing couple meet with an independent mediator. The mediator is trained in mediation techniques, and is there to facilitate communication and help the couple reach an agreement for financial settlement. It would be wise to obtain independent legal advice alongside the mediation process.

Collaborative Law: This process is similar to mediation, but doesn’t involve a trained mediator. Instead, each of the divorcing parties plus their solicitors meets to settle the financial arrangements. Typically the solicitors are trained in collaborative law techniques to facilitate the process.

If an agreement is reached in any one of the three ways outlined above their solicitors draft a consent order that confirms the terms of the settlement. The consent order and supporting documentation is filed with the court, and is legally binding once it has been approved by a judge. The required supporting documentation includes things such as income and budgets for both spouses.

Financial Order: If a divorcing couple can’t reach an agreement, one or both parties can ask the court for a financial order. This means they ask the court to decide the terms of the financial settlement. Getting a financial order usually takes around six to 12 months. The court will make a decision as to how the assets are to be divided and make an order to reflect the decision made.

How are Marital Assets Distributed?

When one party involves the court system by applying for a financial order, the court has the power to make legally binding decisions on how marital assets are distributed. Depending on the circumstances they may also make decisions on how future earnings and/or assets are distributed.

The decisions that the court makes are of two main kinds. First, the court can decide what kind of financial settlement to order. Some possible examples include:

  • A one-off lump sum payment made by one party to the other.
  • A property adjustment, where property owned by the marriage is transferred to ownership of one spouse, or is sold. Alternatively, property owned by one spouse may be awarded to the other spouse.
  • Periodic payments from the non-custodial parent, intended as maintenance for the children of the marriage.
  • Periodic payments made by one spouse as maintenance for the other spouse, may be awarded in cases where one spouse has worked as a homemaker or stay-at-home parent and consequently has reduced earning power.
  • A pension-sharing order, where part of one spouse’s pension is awarded to the other spouse.
  • A combination of the above.

The second kind of decision is in terms of the size of the settlement that is made; i.e. what share of the asset total each spouse is awarded. The court takes several different factors into account, including the earning power of both spouses; the standard of living of the family prior to the divorce; the duration of the marriage; the ages of the spouses; and whether either partner has a disability or other special needs.

Also of importance are the contributions that each spouse made to the marriage, both financial and otherwise. Examples of contributions include wages or salary earned by each spouse, and work performed in the home by a stay-at-home spouse or parent.

UK financial settlement law operates on the “clean break” principle, which means that the financial obligations of one spouse to another should be as short-term as possible. As a result, when making financial settlement decisions, the court will whenever possible decide in favour of one-off payments or property adjustment over maintenance payments, or short-term payment arrangements over long-term.

What about When Children are Involved?

Financial settlements are relatively simple when there are no children to consider; however if there are one or more children it’s not nearly so easy to reach a financial settlement.

One reason for this is that more often than not, one parent has left the workforce to take care of the children. When this happens their ability to get a job—and their earning power—is reduced relative to what it would have been if they hadn’t left the workforce. This is something the court will take into account when determining how much maintenance to award the other spouse.

Another reason that financial settlements become more complicated is that there are considerations such as whether to retain the family home for the children and parent with care to live in, and what kind of financial contribution the non-custodial spouse will make to the household.

The “clean break” principle is still considered when the court makes decisions about families with children, but it’s more common for maintenance payments to be awarded when children are involved. This is because the court prioritises the needs of children over all other considerations, so while short-term arrangements are the preferred solution overall, the court can award maintenance and make other longer-term arrangements when considered appropriate.

Avenue Solicitors are specialist family Solicitors and can assist you to achieve a fair and reasonable financial settlement by providing compassionate and clear advice.

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